Investing in People: The Case for Human Capital Tax Credits

Rui Costa, Nikhil Datta (), Stephen Machin and Sandra McNally
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Nikhil Datta: London School of Economics

No 2018-030, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: Estimates from the US suggest that increasing levels of human capital over the second half of the last century accounted for approximately one third of productivity growth, while some estimates of the social rate of return to R&D in the manufacturing sector have exceeded one hundred percent. Despite the contribution of both human capital and R&D to economic growth, the UK fiscal system does not treat the two equally when it comes to employer incentives to invest. Firms that invest in R&D are able to claim generous tax relief on their investments whereas there is no such across-the-board incentive to invest in the training of their workers. This is despite the fact that the rationale for government support to firm investment in human capital is similar to that for R&D and both are important for economic growth. We explain the economic rationale for government support in the form of tax credits, discuss current practice in the UK in relation to R&D, and address the evidence on effectiveness. We then discuss how the policy might be adapted to provide similar incentives for investing in human capital.

Keywords: human capital; research and development; r&d; tax relief; United Kingdom (search for similar items in EconPapers)
JEL-codes: H23 J24 O30 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-hrm, nep-ino, nep-ltv, nep-pbe, nep-pub and nep-tid
Note: MIP
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Citations: View citations in EconPapers (6)

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http://humcap.uchicago.edu/RePEc/hka/wpaper/Costa_ ... esting-in-people.pdf First version, February, 2018 (application/pdf)

Related works:
Working Paper: Investing in People: The Case for Human Capital Tax Credits (2018)
Working Paper: Investing in People: The Case for Human Capital Tax Credits (2018)
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